The chancellor has abolished rules forcing pension savers to buy an annuity by the age of 75.
Photograph: Jac/Getty Images

The chancellor has abolished rules forcing millions of pension savers to buy an annuity by the age of 75. As an interim measure, the age has been pushed up to 77 with immediate effect, ahead of a consultation on scrapping the requirement completely from next year.

The budget states the government "will end the existing rules that create an effective obligation to purchase an annuity by age 75 from April 2011, to enable individuals to make more flexible use of their pension savings". Ministers will soon launch a consultation, hence the need for transitional measures to cater for those who will reach 75 in the meantime.

Currently, anyone who has a "money purchase" company pension scheme, which builds up depending on the performance of the stock market, has to buy an annuity (a fixed income for life) with their pension pot by the age of 75.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said the chancellor's announcement "will go a long way towards addressing many people's instinctive reservations about committing money to a pension".

Many pensions groups welcomed the news that the government is considering scrapping plans to limit tax relief on pensions for high earners. Labour had planned to restrict the amount of tax relief for which people earning more than £150,000 qualified. But the chancellor said ministers would consult on other ways to save money on pension contributions for high earners – such as by limiting the annual amount people can save into a pension.

It is estimated that reducing the current annual allowance of £255,000 to £30,000-£45,000 would produce a similar saving for the Treasury as the £3.5bn that would be saved through reducing pensions tax relief for high earners, and would be simpler to administer.